Attached files
file | filename |
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EX-31.2 - EXHIBIT 31.2 - PennyMac Mortgage Investment Trust | a2199588zex-31_2.htm |
EX-31.1 - EXHIBIT 31.1 - PennyMac Mortgage Investment Trust | a2199588zex-31_1.htm |
EX-32.1 - EXHIBIT 32.1 - PennyMac Mortgage Investment Trust | a2199588zex-32_1.htm |
EX-32.2 - EXHIBIT 32.2 - PennyMac Mortgage Investment Trust | a2199588zex-32_2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One) | ||
ý |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended June 30, 2010 |
||
Or |
||
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the transition period from to |
Commission file number: 001-34416
PennyMac Mortgage Investment Trust
(Exact name of registrant as specified in its charter)
Maryland (State or other jurisdiction of incorporation or organization) |
27-0186273 (IRS Employer Identification No.) |
|
27001 Agoura Road, Calabasas, California (Address of principal executive offices) |
91301 (Zip Code) |
(818) 224-7442
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer o | Accelerated filer ý | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No ý
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Class | Outstanding at August 4, 2010 | |
---|---|---|
Common Shares of Beneficial Interest, $.01 par value | 16,832,345 |
PENNYMAC MORTGAGE INVESTMENT TRUST
FORM 10-Q
June 30, 2010
TABLE OF CONTENTS
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
|
June 30, 2010 | December 31, 2009 | ||||||
---|---|---|---|---|---|---|---|---|
ASSETS |
||||||||
Cash |
$ | 22,514 | $ | 54 | ||||
Short-term investment |
18,197 | 213,628 | ||||||
Mortgage-backed securities at fair value |
103,164 | 83,771 | ||||||
Mortgage loans at fair value |
197,505 | 26,046 | ||||||
Real estate acquired in settlement of loans |
13,241 | | ||||||
Principal and interest collections receivable |
10,554 | | ||||||
Interest receivable |
916 | 492 | ||||||
Due from affiliates |
147 | | ||||||
Other assets |
4,240 | 455 | ||||||
Total assets |
$ | 370,478 | $ | 324,446 | ||||
LIABILITIES |
||||||||
Accounts payable and accrued liabilities |
$ | 409 | $ | 527 | ||||
Securities sold under agreements to repurchase |
31,362 | | ||||||
Contingent underwriting fees payable |
5,883 | 5,883 | ||||||
Income taxes payable |
1,653 | | ||||||
Payable to affiliates |
6,897 | 4,238 | ||||||
Total liabilities |
46,204 | 10,648 | ||||||
Commitments and contingencies |
| | ||||||
SHAREHOLDERS' EQUITY |
||||||||
Common shares of beneficial interestauthorized, 500,000,000 shares of $0.01 par value; issued and outstanding, 16,735,317 shares |
167 | 167 | ||||||
Additional paid-in capital |
316,585 | 315,514 | ||||||
Retained earnings (accumulated deficit) |
7,522 | (1,883 | ) | |||||
Total shareholders' equity |
324,274 | 313,798 | ||||||
Total liabilities and shareholders' equity |
$ | 370,478 | $ | 324,446 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
1
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
(Unaudited)
|
Quarter ended June 30, 2010 |
Six months ended June 30, 2010 |
|||||||
---|---|---|---|---|---|---|---|---|---|
Investment Income |
|||||||||
Interest income: |
|||||||||
Mortgage loans |
$ | 1,912 | $ | 3,162 | |||||
Mortgage-backed securities |
1,267 | 2,551 | |||||||
Short-term investment |
22 | 67 | |||||||
|
3,201 | 5,780 | |||||||
Gains (losses) on investments: |
|||||||||
Mortgage loans |
9,994 | 11,127 | |||||||
Mortgage-backed securities |
(207 | ) | (150 | ) | |||||
|
9,787 | 10,977 | |||||||
Operations of real estate acquired in settlement of loans |
335 |
335 |
|||||||
Other income |
1 | 1 | |||||||
Net investment income |
13,324 | 17,093 | |||||||
Expenses |
|||||||||
Management fees |
1,202 | 2,413 | |||||||
Compensation |
836 | 1,639 | |||||||
Professional services |
399 | 493 | |||||||
Insurance |
200 | 397 | |||||||
Other |
624 | 707 | |||||||
Total expenses |
3,261 | 5,649 | |||||||
Income before provision for income taxes |
10,063 | 11,444 | |||||||
Provision for income taxes |
1,912 | 2,039 | |||||||
Net income |
$ | 8,151 | $ | 9,405 | |||||
Earnings per share: |
|||||||||
Basic |
$ | 0.49 | $ | 0.56 | |||||
Diluted |
$ | 0.48 | $ | 0.55 | |||||
Weighted average shares outstanding: |
|||||||||
Basic |
16,735,317 | 16,735,317 | |||||||
Diluted |
17,106,527 | 17,106,527 |
The accompanying notes are an integral part of these consolidated financial statements.
2
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
|
Number of shares |
Par value |
Additional paid-in capital |
Retained earnings (accumulated deficit) |
Total | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2009 |
16,735,317 | $ | 167 | $ | 315,514 | $ | (1,883 | ) | $ | 313,798 | |||||||
Net income |
| | | 9,405 | 9,405 | ||||||||||||
Share-based compensation |
| | 1,221 | | 1,221 | ||||||||||||
Share issuance costs |
| | (150 | ) | | (150 | ) | ||||||||||
Balance at June 30, 2010 |
16,735,317 | $ | 167 | $ | 316,585 | $ | 7,522 | $ | 324,274 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
|
Six months ended June 30, 2010 |
||||||
---|---|---|---|---|---|---|---|
Cash flows from operating activities: |
|||||||
Net income |
$ | 9,405 | |||||
Adjustments to reconcile net income to net cash used by operating activities: |
|||||||
Accrual of unearned discounts on mortgage-backed securities |
(1,561 | ) | |||||
Gains on investments, net |
(10,977 | ) | |||||
Change in fair value of real estate acquired in settlement of loans |
(335 | ) | |||||
Share-based compensation expense |
1,221 | ||||||
Purchase of mortgage loans for sale |
(15,157 | ) | |||||
Sale of mortgage loans purchased for sale |
14,876 | ||||||
Increase in principal and interest collections receivable |
(10,554 | ) | |||||
Increase in interest receivable |
(443 | ) | |||||
Increase in due from affiliates |
(147 | ) | |||||
Increase in other assets |
(3,829 | ) | |||||
Decrease in accounts payable and accrued liabilities |
(118 | ) | |||||
Increase in income taxes payable |
1,653 | ||||||
Increase in payable to affiliates |
2,659 | ||||||
Net cash used by operating activities |
(13,307 | ) | |||||
Cash flows from investing activities: |
|||||||
Net decrease in short-term investment |
195,431 | ||||||
Purchases of mortgage-backed securities |
(36,898 | ) | |||||
Repayments of mortgage-backed securities |
18,916 | ||||||
Purchases of mortgage loans |
(198,082 | ) | |||||
Repayments of mortgage loans |
23,901 | ||||||
Sales of mortgage loans |
891 | ||||||
Purchases of real estate acquired in settlement of loans |
(1,238 | ) | |||||
Sales of real estate acquired in settlement of loans |
1,634 | ||||||
Net cash provided by investing activities |
4,555 | ||||||
Cash flows from financing activities: |
|||||||
Proceeds from sales of securities under agreements to repurchase |
31,362 | ||||||
Payment of stock issuance costsinitial exchange listing fees |
(150 | ) | |||||
Net cash provided by financing activities |
31,212 | ||||||
Net increase in cash |
22,460 | ||||||
Cash at beginning of period |
54 | ||||||
Cash at end of period |
$ | 22,514 | |||||
Supplemental Cash Flow Information: |
|||||||
Non cash investing activities: |
|||||||
Transfer of mortgage loans to real estate acquired in settlement of loans |
$ | 13,302 | |||||
Capitalization of interest in loan modifications |
(19 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
4
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1Organization and Basis of Presentation
PennyMac Mortgage Investment Trust ("PMT" or the "Company") was organized in Maryland on May 18, 2009, and began operations on August 4, 2009, when it completed its initial offerings of common shares of beneficial interest ("shares"). The Company is a specialty finance company, which, through its subsidiaries (all of which are wholly-owned), invests primarily in residential mortgage loans and mortgage-related assets. The Company's investment objective is to maximize the value of the mortgage loans that it acquires, a substantial portion of which may be distressed and acquired at discounts to their unpaid principal balances, either through proprietary loan modification programs, special servicing and other initiatives focused on keeping borrowers in their homes, or, when necessary, through timely acquisition and liquidation of the property securing the loan. Accordingly, management has concluded that the Company operates as a single segment.
The Company intends to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), beginning with its taxable period ended on December 31, 2009. To maintain its tax status as a REIT, the Company plans to distribute at least 90% of its taxable income in the form of qualifying distributions to holders of shares.
The Company is externally managed by an affiliate, PNMAC Capital Management, LLC ("PCM" or the "Manager"), an investment adviser registered with the Securities and Exchange Commission ("SEC") that specializes in and focuses on residential mortgage loans. Under the terms of a management agreement, PCM is paid a management fee with a base component and a performance incentive component. Determination of the amount of management fees is discussed in Note 3Transactions with Related Parties.
The Company conducts substantially all of its operations, and makes substantially all of its investments, through PennyMac Operating Partnership, L.P. ("Operating Partnership") and its subsidiaries. A wholly-owned subsidiary of the Company is the sole general partner of the Operating Partnership and the Company is the sole limited partner.
The accompanying consolidated financial statements have been prepared in compliance with accounting principles generally accepted in the U.S. ("U.S. GAAP") for interim financial information and with the SEC's instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements and notes do not include all of the information required by U.S. GAAP for complete financial statements.
Preparation of financial statements in compliance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results will likely differ from those estimates.
In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the periods ended June 30, 2010 are not necessarily indicative of the results for the year ending December 31, 2010. Comparable year information related to the Consolidated Statements of Income and Consolidated Statement of Cash Flows are omitted as the Company began operations on August 4, 2009.
5
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 2Concentration of Risks
PMT's operations and investing activities are centered in residential real estate-related assets, a substantial portion of which are distressed at acquisition. Because of the Company's investment strategy, many of the mortgage loans in its targeted asset class are purchased at discounts reflecting their distressed state or perceived higher risk of default. PCM validates information provided by the assets' sellers and obtains updated or additional information where necessary on the mortgage loans and mortgage-related assets it targets for acquisition to evaluate the prospective acquisition's credit risk and establish a purchase bid that reflects PCM's assessment of that risk. Additionally, a significant portion of the nonperforming loans purchased by the Company have been acquired from one major financial institution.
Through its management agreement with PCM and, where applicable, the loan servicing agreement between its Operating Partnership and an affiliated company, PennyMac Loan Services, LLC ("PLS"), PMT will work with borrowers to perform loss mitigation activities. Such activities include the use of proprietary and federally sponsored loan modification programs (such as the U.S. Department of Housing and Urban Development's Home Affordable Modification Program, or HAMP) and workout options that PCM believes have the highest probability of successful resolution for both borrowers and PMT. Loan modification or resolution may include PMT accepting a write down of the principal balances of certain mortgage loans in its investment portfolio. When loan modifications and other efforts are unable to cure loans, the Company's objective is to effect timely acquisition and liquidation of the property securing the mortgage loan.
Because of the Company's investment focus, PMT is exposed, to a greater extent than traditional mortgage investors, to the risks that more borrowers than anticipated default on their mortgage loans and to the effects of fluctuations in the residential real estate market on the performance of its investments. Factors influencing these risks include, but are not limited to:
-
- changes in the overall economy, unemployment and residential real estate values in the markets where the Company's
mortgage loans are secured;
-
- PCM's ability to identify and PLS's ability to execute optimal resolutions of problem mortgage loans;
-
- the accuracy of borrower representations and PLS's ability to validate borrower capacity to meet the terms of workout
agreements;
-
- PCM's ability to effectively model and develop appropriate model assumptions that properly anticipate future outcomes; and
-
- the level of government support for problem loan resolution and the effect of current and future proposed and enacted legislative and regulatory changes on the Company's ability to effect cures to distressed loans or foreclose on and liquidate the real estate securing its portfolio of distressed mortgage loans.
Due to these uncertainties, there can be no assurance that risk management activities identified and executed on PMT's behalf will prevent significant losses arising from the Company's investments in real estate-related assets.
6
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 2Concentration of Risks (Continued)
As discussed in Note 3Transactions with Related Parties, the Company's short-term investment is made in an uninsured institutional money market fund that is managed by a strategic investor in the parent company of PCM and PLS. The fund invests exclusively in first-tier securities as rated by a nationally recognized rating organization. The fund's investments are comprised primarily of domestic commercial paper, securities issued or guaranteed by the U.S. Government or its agencies, obligations of foreign banks with operations in the U.S., fully collateralized repurchase agreements and variable and floating rate demand notes.
Note 3Transactions with Related Parties
The Company is managed externally by PCM under the terms of a management agreement that expires on August 4, 2012 and will be automatically renewed for a one-year term each anniversary date thereafter unless previously terminated. If the Company terminates the management agreement without cause, or PCM terminates the management agreement upon a default in the Company's performance of any material term in the management agreement, PMT will pay a termination fee to PCM. PMT pays PCM a base management fee and a performance incentive fee, both payable quarterly and in arrears. Both the management and termination fees are more fully described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 ("Annual Report").
Following is a summary of management fee expense and its related liability recorded by the Company for the periods presented:
|
Quarter ended June 30, 2010 |
Six months ended June 30, 2010 |
|||||
---|---|---|---|---|---|---|---|
|
(in thousands) |
||||||
Base management fee |
$ | 1,202 | $ | 2,413 | |||
Performance incentive fee |
| | |||||
Total incurred during the period |
1,202 | 2,413 | |||||
Fee paid during the period |
| (1,169 | ) | ||||
Fee outstanding at beginning of period |
1,211 | 1,169 | |||||
Fee outstanding at end of period |
$ | 2,413 | $ | 2,413 | |||
The Company, through its operating partnership, also has a loan servicing agreement with PLS. Servicing fee rates are based on the risk characteristics of the mortgage loans serviced and total servicing compensation is established at levels that management believes are competitive with those charged by other specialty servicers. Servicing fee rates are expected to range between 30 and 100 basis points per annum on the unpaid principal balance of the mortgage loans serviced on the Company's behalf.
Under the loan servicing agreement, PLS is also entitled to certain customary market-based fees and charges, including boarding and de-boarding fees, disposition fees, assumption, modification and origination fees and late charges, as well as interest on funds on deposit in custodial or escrow accounts. In the event PLS effects a refinancing of a loan on the Company's behalf and not through a third party lender and the resulting loan is readily saleable, PLS is entitled to receive from the Company an origination fee of 1.0% of the unpaid principal balance of the loan plus $750. Similarly,
7
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 3Transactions with Related Parties (Continued)
when PLS originates a loan to facilitate the disposition of real estate that the Company has acquired in settlement of a loan, PLS is entitled to a fee in the same amount. The Company currently participates in HAMP (and other similar mortgage loan modification programs), which establishes standard loan modification guidelines for "at risk" homeowners and provides incentive payments to certain participants, including loan servicers, for achieving modifications and successfully remaining in the program. The loan servicing agreement entitles PLS to retain any incentive payments made to it and to which it is entitled under HAMP; provided, however, that with respect to any such incentive payments paid to PLS in connection with a mortgage loan modification for which the Company previously paid PLS a modification fee, PLS shall reimburse the Company an amount equal to the lesser of such modification fee or such incentive payments.
During the quarter and six months ended June 30, 2010, the Company recorded $250,000 of purchase deposits made on its behalf by PCM. The Company also paid servicing fees to PLS as provided in its loan servicing agreement and recorded other expenses, including common overhead expenses incurred on its behalf by PCM and its affiliates in accordance with the terms of its management agreement. Following is a summary of those expenses for the periods presented:
|
Quarter ended June 30, 2010 |
Six months ended June 30, 2010 |
||||||
---|---|---|---|---|---|---|---|---|
|
(in thousands) |
|||||||
Loan servicing fees payable to PLS |
$ | 540 | $ | 623 | ||||
Reimbursement of expenses incurred on PMT's behalf: |
||||||||
Compensation |
81 | 206 | ||||||
Other |
78 | 349 | ||||||
|
159 | 555 | ||||||
Reimbursement of common overhead incurred by PCM and its affiliates |
481 | 481 | ||||||
|
$ | 1,180 | $ | 1,659 | ||||
Payments made during the period |
$ | 121 | $ | 248 | ||||
During the Company's startup period and through the quarter ended March 31, 2010, PCM and its affiliates did not charge the Company for its proportionate share of common overhead expenses. For the quarter ended March 31, 2010, such expenses totaled approximately $500,000. No other charges were waived by PCM during the Company's startup period and through the quarter ended March 31, 2010.
As more fully described in the Company's Annual Report, certain of the underwriting costs incurred in the Company's initial public offering ("IPO") were paid on PMT's behalf by PCM and a portion of the underwriting discount was deferred by agreement with the underwriters of the offering.
8
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 3Transactions with Related Parties (Continued)
Amounts due to affiliates are summarized below as of the dates presented:
|
June 30, 2010 | December 31, 2009 | |||||
---|---|---|---|---|---|---|---|
|
(in thousands) |
||||||
Contingent offering costs |
$ | 2,941 | $ | 2,941 | |||
Management fee |
2,413 | 1,169 | |||||
Expense and purchase deposit reimbursements |
1,543 | 128 | |||||
|
$ | 6,897 | $ | 4,238 | |||
Amounts due from affiliates at June 30, 2010, totaled $147,000 and represent servicing advances relating to the Company's investment loans.
The Company's short-term investment represents an investment in a liquidity management fund that is managed by BlackRock, Inc., which is a strategic investor in the parent company of PCM and PLS.
Note 4Earnings Per Share
Basic earnings per share is determined using net earnings divided by the weighted-average shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings available to common shareholders by the weighted-average shares outstanding, assuming all potentially dilutive common shares were issued. In periods in which the Company records a loss, potentially dilutive shares are excluded from the diluted loss per share calculation as their effect on loss per share is anti-dilutive.
The following table summarizes the basic and diluted earnings per share calculations for the periods presented:
|
Quarter ended June 30, 2010 | Six months ended June 30, 2010 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net income |
Shares | Per-share amount |
Net income |
Shares | Per-share amount |
|||||||||||||
|
(in thousands, except per share data) |
||||||||||||||||||
Basic net income per share |
$ | 8,151 | 16,735 | $ | 0.49 | $ | 9,405 | 16,735 | $ | 0.56 | |||||||||
Effect of dilutive securitiesshare-based compensation instruments |
| 371 | (0.01 | ) | | 371 | (0.01 | ) | |||||||||||
Diluted net income per share |
$ | 8,151 | 17,106 | $ | 0.48 | $ | 9,405 | 17,106 | $ | 0.55 | |||||||||
Note 5Fair Value
The Company's financial statements include assets and liabilities that are measured based on their estimated fair values. The application of fair value estimates may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability and whether management has elected to carry the item at its estimated fair value as discussed in the following paragraphs. Changes in the fair value of mortgage loans and changes in the fair value of mortgage-
9
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 5Fair Value (Continued)
backed securities ("MBS") are reported in the Company's statement of income under the caption gains (losses) on investments.
Fair Value Accounting Elections
Management identified all of its financial instruments, including short-term investment, mortgage loans, MBS and securities sold under agreements to repurchase to be accounted for at estimated fair value so such changes in fair value will be reflected in earnings as they occur. Fair value accounting more timely reflects the results of the Company's investment performance.
Fair Value Measurements
For the quarter and six months ended ended June 30, 2010, the Company recorded in its net investment income $9,994,000 and $11,127,000 of realized and unrealized gains on mortgage loans and $207,000 and $150,000 of realized and unrealized losses on MBS, respectively, under the fair value option. Gains and losses from changes in the estimated fair value of mortgage loans and MBS are included in gains (losses) on investments.
The following financial statement items are measured at estimated fair value on a recurring basis as of the dates presented:
|
June 30, 2010 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Level 1 | Level 2 | Level 3 | Total | ||||||||||
|
(in thousands) |
|||||||||||||
Assets: |
||||||||||||||
Short-term investment |
$ | 18,197 | $ | | $ | | $ | 18,197 | ||||||
Mortgage-backed securities |
| | 103,164 | 103,164 | ||||||||||
Mortgage loans |
| 289 | 197,216 | 197,505 | ||||||||||
|
$ | 18,197 | $ | 289 | $ | 300,380 | $ | 318,866 | ||||||
Liabilities: |
||||||||||||||
Securities sold under agreements to repurchase |
$ | | $ | | $ | 31,362 | $ | 31,362 | ||||||
|
$ | | $ | | $ | 31,362 | $ | 31,362 | ||||||
|
December 31, 2009 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Level 1 | Level 2 | Level 3 | Total | ||||||||||
|
(in thousands) |
|||||||||||||
Assets: |
||||||||||||||
Short-term investment |
$ | 213,628 | $ | | $ | | $ | 213,628 | ||||||
Mortgage-backed securities |
| | 83,771 | 83,771 | ||||||||||
Mortgage loans |
| | 26,046 | 26,046 | ||||||||||
|
$ | 213,628 | $ | | $ | 109,817 | $ | 323,445 | ||||||
10
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 5Fair Value (Continued)
Most of the mortgage loans and all MBS were measured using Level 3 inputs. The following is a summary of changes in items measured using Level 3 inputs on a recurring basis for the periods presented:
|
Quarter ended June 30, 2010 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
Mortgage loans |
Mortgage-backed securities |
Total | ||||||||
|
(in thousands) |
||||||||||
Assets: |
|||||||||||
Balance, March 31, 2010 |
$ | 123,464 | $ | 76,389 | $ | 199,853 | |||||
Changes in fair value included in results of operations arising from: |
|||||||||||
Changes in credit quality |
2,139 | | 2,139 | ||||||||
Other factors |
7,891 | (207 | ) | 7,684 | |||||||
|
10,030 | (207 | ) | 9,823 | |||||||
Purchases |
96,657 | 36,484 | 133,141 | ||||||||
Accrual of unearned discounts |
| 796 | 796 | ||||||||
Capitalization of accrued interest in loan modifications |
19 | | 19 | ||||||||
Repayments |
(19,034 | ) | (10,298 | ) | (29,332 | ) | |||||
Transfers of mortgage loans to real estate acquired in settlement of loans |
(13,029 | ) | | (13,029 | ) | ||||||
Sales |
(891 | ) | | (891 | ) | ||||||
Balance, June 30, 2010 |
$ | 197,216 | $ | 103,164 | $ | 300,380 | |||||
Changes in gains relating to assets still held at June 30, 2010 |
$ | 2,118 | $ | (207 | ) | $ | 1,911 | ||||
|
Quarter ended June 30, 2010 |
|||
---|---|---|---|---|
|
Securities Sold Under Agreements to Repurchase |
|||
|
(in thousands) |
|||
Liabilities: |
||||
Balance, March 31, 2010 |
$ | | ||
Changes in fair value included in results of operations |
| |||
Sales of securities under agreements to repurchase |
31,362 | |||
Repurchases |
| |||
Balance, June 30, 2010 |
$ | 31,362 | ||
Changes in gains relating to liabilities still outstanding at June 30, 2010 |
$ | | ||
11
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 5Fair Value (Continued)
|
Six months ended June 30, 2010 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
Mortgage loans |
Mortgage-backed securities |
Total | ||||||||
|
(in thousands) |
||||||||||
Assets: |
|||||||||||
Balance, December 31, 2009 |
$ | 26,046 | $ | 83,771 | $ | 109,817 | |||||
Changes in fair value included in results of operations arising from: |
|||||||||||
Changes in credit quality |
1,628 | | 1,628 | ||||||||
Other factors |
9,535 | (150 | ) | 9,385 | |||||||
|
11,163 | (150 | ) | 11,013 | |||||||
Purchases |
211,864 | 36,898 | 248,762 | ||||||||
Capitalization of interest in loan modifications |
19 | | 19 | ||||||||
Accrual of unearned discounts |
| 1,561 | 1,561 | ||||||||
Repayments |
(23,901 | ) | (18,916 | ) | (42,817 | ) | |||||
Transfers of mortgage loans to real estate acquired in settlement of loans |
(13,302 | ) | | (13,302 | ) | ||||||
Sales |
(14,673 | ) | | (14,673 | ) | ||||||
Balance, June 30, 2010 |
$ | 197,216 | $ | 103,164 | $ | 300,380 | |||||
Changes in gains relating to assets still held at June 30, 2010 |
$ | 1,442 | $ | (150 | ) | $ | 1,292 | ||||
|
Six months ended June 30, 2010 | |||
---|---|---|---|---|
|
Securities Sold Under Agreements to Repurchase |
|||
|
(in thousands) |
|||
Liabilities: |
||||
Balance, December 31, 2009 |
$ | | ||
Changes in fair value included in results of operations |
| |||
Sales of securities under agreements to repurchase |
31,362 | |||
Repurchases |
| |||
Balance, June 30, 2010 |
$ | 31,362 | ||
Changes in gains relating to liabilities still outstanding at June 30, 2010 |
$ | | ||
12
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 5Fair Value (Continued)
Following are the fair values and related principal amounts due upon maturity of mortgage loans accounted for under the fair value option as of the dates presented:
|
June 30, 2010 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Fair value | Unpaid principal balance |
Fair value over (under) unpaid principal balance |
|||||||
|
(in thousands) |
|||||||||
Current through 89 days delinquent |
$ | 49,859 | $ | 80,478 | $ | (30,619 | ) | |||
90 or more days delinquent |
147,646 | 272,556 | (124,910 | ) | ||||||
|
$ | 197,505 | $ | 353,034 | $ | (155,529 | ) | |||
|
December 31, 2009 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Fair Value | Unpaid principal balance |
Fair value over (under) unpaid principal balance |
|||||||
|
(in thousands) |
|||||||||
Current through 89 days delinquent |
$ | 26,046 | $ | 40,071 | $ | (14,025 | ) | |||
90 or more days delinquent |
| | | |||||||
|
$ | 26,046 | $ | 40,071 | $ | (14,025 | ) | |||
The Company measures its investment in real estate acquired in settlement of loans at estimated fair value on a nonrecurring basis. Such assets are measured based on their estimated fair values upon initial recognition and when the Company's subsequent fair value estimate is less than the value recorded upon initial recognition. At June 30, 2010, the Company carried $13,241,000 of real estate acquired in settlement of loans on its Consolidated Balance Sheet. There was no real estate acquired in settlement of loans at December 31, 2009.
During the quarter and six months ended June 30, 2010, mortgage loans with a fair value of $13,302,000 were transferred to real estate acquired in settlement of loans. The fair value of the real estate acquired in settlement of loans is initially established as the fair value of the real estate less estimated costs to sell as of the date of transfer. Any ensuing change in fair value to a level that is less than or equal to the value at which the property was initially recorded is recognized in results of real estate acquired in settlement of loans. Real estate acquired in settlement of loans with a fair value of $748,000 was remeasured at fair value and losses totaling $206,000 were recognized in results of real estate acquired in settlement of loans for the quarter and six months ended June 30, 2010.
Valuation Techniques
The following describes the methods used in estimating the fair values of Level 3 financial statement items:
Mortgage-Backed Securities
Fair value of non-Agency MBS is estimated using broker indications of value. For indications of value received as of June 30, 2010, PCM's Capital Markets staff reviewed, and its senior management Valuation Committee reviewed and approved, the securities' values. PCM's review is for the purpose of
13
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 5Fair Value (Continued)
evaluating the reasonableness of the broker's indication of value and may result in the broker modifying its indications of value. PCM does not intend to adjust its fair value estimates to amounts different from the broker's indications of value.
Mortgage Loans
Fair value of mortgage loans is estimated based on whether the mortgage loans are saleable into active markets with established counterparties and transparent pricing. Fair value is estimated for mortgage loans that are not saleable into active markets using a discounted cash flow valuation model. Inputs to the model include current interest rates, loan amount, payment status and property type and forecasts of future interest rates, home prices, prepayment speeds, defaults and loss severities. Mortgage loans which are saleable into active markets are valued at their quoted market price or market price equivalent.
Management incorporates lack of liquidity into its fair value estimates based on the type of asset or liability measured and the valuation method used. For example, for mortgage loans where the significant inputs have become unobservable due to illiquidity in the markets for distressed mortgage loans or non-Agency, non-conforming mortgage loans, PMT uses a discounted cash flow technique to estimate fair value. This technique incorporates forecasting of expected cash flows discounted at an appropriate market discount rate that is intended to reflect the lack of liquidity in the market.
Real Estate Acquired in Settlement of Loans
Real estate acquired in settlement of loans is measured based on its fair value on a nonrecurring basis. Fair value of real estate acquired in settlement of loans is determined by management based on a current estimate of value which is based on a broker's price opinion or a full appraisal.
Securities Sold Under Agreements to Repurchase
Fair value of securities sold under agreements to repurchase is based on the accrued cost of the agreements, which approximates fair value, due to the securities' short maturities.
Note 6Mortgage-Backed Securities at Fair Value
Investments in MBS were as follows for the dates presented:
|
June 30, 2010 | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Credit rating | |||||||||||||||||||||
|
Total | AAA | AA | A | BBB | Non-investment grade |
Not rated | ||||||||||||||||
|
(in thousands) |
||||||||||||||||||||||
Security collateral type: |
|||||||||||||||||||||||
Non-Agency subprime |
$ | 67,407 | $ | 864 | $ | 7,064 | $ | 3,242 | $ | 4,495 | $ | 46,930 | $ | 4,812 | |||||||||
Non-Agency Alt-A |
21,412 | 755 | 7,278 | | 557 | 12,822 | | ||||||||||||||||
Non-Agency prime jumbo |
14,345 | | 12,836 | | | 1,509 | | ||||||||||||||||
|
$ | 103,164 | $ | 1,619 | $ | 27,178 | $ | 3,242 | $ | 5,052 | $ | 61,261 | $ | 4,812 | |||||||||
14
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 6Mortgage-Backed Securities at Fair Value (Continued)
|
December 31, 2009 | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Credit rating | |||||||||||||||||||||
|
Total | AAA | AA | A | BBB | Non-investment grade |
Not rated | ||||||||||||||||
|
(in thousands) |
|
|||||||||||||||||||||
Security collateral type: |
|||||||||||||||||||||||
Non-Agency subprime |
$ | 39,522 | $ | 1,910 | $ | 8,085 | $ | 8,704 | $ | 3,151 | $ | 12,620 | $ | 5,052 | |||||||||
Non-Agency Alt-A |
27,060 | 9,022 | | | 1,071 | 16,967 | | ||||||||||||||||
Non-Agency prime jumbo |
17,189 | | 14,737 | | | 2,452 | | ||||||||||||||||
|
$ | 83,771 | $ | 10,932 | $ | 22,822 | $ | 8,704 | $ | 4,222 | $ | 32,039 | $ | 5,052 | |||||||||
At June 30, 2010, the Company had pledged $36.5 million of MBS to secure securities sold under agreements to repurchase. No securities were pledged at December 31, 2009.
Note 7Mortgage Loans
Following is a summary of the distribution of the Company's mortgage loans as of the dates presented:
|
June 30, 2010 | December 31, 2009 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Loan Type
|
Fair value |
% total |
Average note rate |
Fair value |
% total |
Average note rate |
|||||||||||||||
|
(dollars in thousands) |
||||||||||||||||||||
Held for sale |
$ | 289 | 0 | % | 4.38 | % | $ | | 0 | % | |||||||||||
Held for investment: |
|||||||||||||||||||||
Nonperforming loans |
147,646 | 75 | % | 6.61 | % | | 0 | % | |||||||||||||
Performing loans: |
|||||||||||||||||||||
Fixed |
36,055 | 18 | % | 7.20 | % | 24,533 | 94 | % | 8.15 | % | |||||||||||
ARM/Hybrid |
13,450 | 7 | % | 4.72 | % | 1,454 | 6 | % | 7.89 | % | |||||||||||
Balloon |
65 | 0 | % | 9.94 | % | 59 | 0 | % | 9.94 | % | |||||||||||
|
49,570 | 25 | % | 6.46 | % | 26,046 | 100 | % | 8.14 | % | |||||||||||
|
$ | 197,505 | 100 | % | $ | 26,046 | 100 | % | |||||||||||||
15
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 8Real Estate Acquired in Settlement of Loans
Following is a summary of the activity in real estate acquired in settlement of loans for the periods presented:
|
Quarter ended June 30, 2010 |
Six months ended June 30, 2010 |
|||||
---|---|---|---|---|---|---|---|
|
(in thousands) |
||||||
Balance at beginning of period |
$ | 1,511 | $ | | |||
Purchases |
| 1,238 | |||||
Transfers from mortgage loans |
13,029 | 13,302 | |||||
Valuation adjustments |
335 | 335 | |||||
Sales |
(1,634 | ) | (1,634 | ) | |||
Balance at June 30, 2010 |
$ | 13,241 | $ | 13,241 | |||
Note 9Securities Sold Under Agreements to Repurchase
On June 30, 2010, the Company entered into a financing arrangement to sell securities under agreements to repurchase. The repurchase agreements were collateralized by MBS and matured and were refinanced on July 21, 2010. All securities underlying repurchase agreements are held by the buyer. The repurchase agreement bears interest at the one-month London Inter-Bank Offered Rate plus 75 basis points, or 1.10% at June 30, 2010. All agreements are to repurchase the same or substantially identical securities. The MBS securing the repurchase agreement had a fair value totaling $36.5 million at June 30, 2010.
Note 10Shareholders' Equity
As more fully described in the Company's Annual Report, certain of the underwriting costs incurred in the IPO were paid on PMT's behalf by PCM and a portion of the underwriting discount was deferred by agreement with the underwriters of the offering. Reimbursement to PCM and payment to the underwriters of the deferred underwriting discount are both contingent on PMT's performance during the 24 full calendar quarters after the date of the completion of its IPO, August 4, 2009. If PMT meets the specified performance levels during the 24-quarter period, the Company will reimburse PCM approximately $2.9 million of underwriting costs paid by PCM on the offering date and pay the underwriters approximately $5.9 million in deferred underwriting discount.
If this requirement is not satisfied by the end of such 24-quarter period, the Company's obligation to reimburse PCM and make the conditional payment of the underwriting discount will terminate. Management has concluded that this contingency is probable of being met during the 24-quarter period and has recognized a liability for reimbursement to PCM and payment of the contingent underwriting discount as a reduction of additional paid-in capital.
Note 11Share-Based Compensation Plan
The Company's equity incentive plan allows for grants of equity-based awards up to an aggregate of 8% of PMT's issued and outstanding shares on a diluted basis at the time of the award. Restricted share units have been awarded to trustees and officers of the Company and to employees of affiliated
16
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 11Share-Based Compensation Plan (Continued)
entities at no cost to the grantees. Such awards generally vest over a one- to four-year period. Expense relating to awards is recorded in compensation.
The table below summarizes restricted share unit activity and compensation expense for the periods presented:
|
Quarter ended June 30, 2010 |
Six months ended June 30, 2010 |
|||||||
---|---|---|---|---|---|---|---|---|---|
|
(In thousands, except share data) |
||||||||
Number of shares: |
|||||||||
Outstanding at beginning of period |
374,690 | 374,810 | |||||||
Granted |
1,600 | 23,600 | |||||||
Vested |
| | |||||||
Canceled |
(5,080 | ) | (27,200 | ) | |||||
Outstanding at end of period |
371,210 | 371,210 | |||||||
Expense recorded during the period relating to: |
|||||||||
Employees of PCM and PLS |
$ | 355 | $ | 646 | |||||
Trustees and officers of the Company |
288 | 575 | |||||||
|
$ | 643 | $ | 1,221 | |||||
At June 30, 2010: |
|||||||||
Weighted average grant date fair value per share |
$ | 8.74 | |||||||
Shares available for future awards (1) |
997,312 | ||||||||
- (1)
- Based on shares outstanding as of June 30, 2010. Total shares available for future awards may be adjusted in accordance with the equity incentive plan based on future issuances of PMT's shares as described above.
Note 12Income Taxes
The Company is expected to qualify to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code. Therefore, PMT generally will not be subject to corporate federal or state income tax to the extent that qualifying distributions are made to shareholders and the Company meets REIT requirements including certain asset, income, distribution and share ownership tests.
The Company has elected to treat one of its subsidiaries as a taxable REIT subsidiary ("TRS"). In general, a TRS of the Company may engage in any real estate or non-real estate related business (except for the operation or management of health care facilities or lodging facilities or the provision to any person, under a franchise, license or otherwise, of rights to any brand name under which any lodging facility or health care facility is operated). A TRS is subject to corporate federal and state income tax. Accordingly, a provision for income taxes for the TRS is included in the accompanying consolidated financial statements with respect to the operations of the TRS.
The Company intends to continue to operate in a manner that allows it to continue to meet the requirements for taxation as a REIT. Many of these requirements, however, are highly technical and
17
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 12Income Taxes (Continued)
complex. If the Company were to fail to meet these requirements, the Company could be subject to federal and state income tax on some or all of its consolidated income.
At December 31, 2009, the Company's TRS had tax net operating loss carry-forwards of approximately $106,000, expiring in 2029. The Company ascribed a full valuation allowance to its net deferred tax assets due to the uncertainty in forecasting future TRS taxable income. As the projected income for 2010 indicated the loss carryover would be utilized in 2010, the valuation allowance was reversed during the quarter ended March 31, 2010.
Following is a summary of income tax expense for the periods presented:
|
Quarter ended June 30, 2010 |
Six months ended June 30, 2010 |
|||||
---|---|---|---|---|---|---|---|
|
(in thousands) |
||||||
Current expense |
$ | 1,912 | $ | 2,084 | |||
Deferred expense |
| | |||||
Reversal of valuation allowance |
| (45 | ) | ||||
|
$ | 1,912 | $ | 2,039 | |||
Following is a reconciliation of income tax expense at statutory rates to the income tax expense at the Company's effective rate:
|
Quarter ended June 30, 2010 |
Six months ended June 30, 2010 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Amount | Rate | Amount | Rate | |||||||||
|
(in thousands) |
||||||||||||
Federal income tax expense at statutory tax rate |
$ | 3,523 | 35.0 | % | $ | 4,006 | 35.0 | % | |||||
Effect of non-taxable REIT income |
(2,000 | ) | (19.9 | )% | (2,340 | ) | (20.5 | )% | |||||
State income taxes, net of federal benefit |
320 | 3.2 | % | 349 | 3.1 | % | |||||||
Other |
69 | 0.7 | % | 69 | 0.6 | % | |||||||
Reversal of valuation allowance |
| 0.0 | % | (45 | ) | (0.4 | )% | ||||||
Provision for income taxes and effective tax rate |
$ | 1,912 | 19.0 | % | $ | 2,039 | 17.8 | % | |||||
Note 13Recently Issued Accounting Pronouncements
In January 2010, the FASB issued an Accounting Standards Update ("ASU"), ASU 2010-06 to the Fair Value Measurements and Disclosure topic of the Accounting Standards Codification. The ASU requires additional disclosures about the transfers of classifications among the fair value classification levels and the reasons for those changes and separate presentation of purchases, sales, issuances and settlements in the presentation of the roll forward of Level 3 assets and liabilities. The ASU also clarifies disclosure requirements relating to the level of disaggregation of disclosures relating to classes of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value estimates for Level 2 or Level 3 assets and liabilities. The requirements of the ASU are effective for interim and annual disclosures for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value estimates. Those
18
PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 13Recently Issued Accounting Pronouncements (Continued)
disclosures are effective for interim and annual reporting periods for fiscal years beginning after December 15, 2010. The adoption of this ASU did not have a material effect on the Company's financial statements.
Note 14Commitments and Contingencies
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of June 30, 2010, we were not involved in any such claims or legal proceedings.
Note 15Subsequent Events
After June 30, 2010, through August 4, 2010, the Company acquired $34.8 million and $8.6 million in fair value of mortgage loans and MBS, respectively, and committed to acquire $35.7 million in fair value of mortgage loans.
During July of 2010, the Company financed additional MBS under agreements to repurchase and refinanced existing agreements to repurchase with a fair value totaling $38.1 million.
On August 3, 2010, the Company's Board of Trustees declared a cash distribution of $0.35 per share payable on August 31, 2010 to holders of record of the Company's shares as of August 16, 2010.
19
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
As used in this Report, references to "we," "our," "the Company" and "PMT" refer to PennyMac Mortgage Investment Trust and its consolidated subsidiaries unless otherwise indicated. This discussion includes forward-looking statements concerning future events and performance of the Company, which are subject to certain risks and uncertainties as discussed below under Factors That May Affect Our Future Results.
We are a specialty finance company that invests primarily in residential mortgage loans and mortgage-related assets. Our objective is to provide attractive risk-adjusted returns to our investors over the long-term, primarily through dividends and secondarily through capital appreciation. We intend to achieve this objective primarily by investing in mortgage loans, a substantial portion of which may be distressed and acquired at discounts to their unpaid principal balances. We acquire these loans through direct acquisitions of mortgage loan portfolios from institutions such as banks, mortgage companies and insurance companies and direct acquisitions or participations in structured transactions. A significant portion of the nonperforming loans purchased in 2010 have been acquired from one major financial institution.
We seek to maximize the value of the mortgage loans that we acquire using means that are appropriate for the particular loan, including both proprietary and nonproprietary loan modification programs (such as HAMP), special servicing and other initiatives focused on avoiding foreclosure, when possible. When we are unable to effect a cure for a mortgage delinquency, our objective is to effect timely acquisition and/or liquidation of the property securing the loan. We supplement these activities through participation in other mortgage-related activities, which are in various states of analysis, planning or implementation:
-
- acquisition and sale or securitization of mortgage loans in a conduit capacity between originators of mortgage loans and
the MBS markets. Changes in the mortgage market have significantly reduced the outlets for sales of mortgage loans by smaller mortgage originators who have traditionally sold their loans to larger
mortgage companies and banks who, in turn, sold those loans into securitizations. We believe these changes provide us with the opportunity to act as a conduit between these loan originators and the
securitization markets.
-
- acquisition of REIT-eligible MBS. We believe that the recent dislocations of the residential mortgage markets
have disproportionately affected the pricing of certain classes of MBS, thereby providing attractive investment opportunities in certain residential and commercial mortgage-backed and asset-backed
securities. Such securities include securities backed by Alt-A and subprime mortgage loans.
-
- underwriting and funding of mortgage loans sourced by mortgage loan brokers and other financial intermediaries.
-
- providing inventory financing of mortgage loans for smaller mortgage originators. We believe this activity will supplement
and make our conduit capacity more attractive to lenders from which we acquire newly originated loans.
-
- acquisition of mortgage servicing rights ("MSRs"). We believe that opportunities exist to acquire mortgage servicing
rights from liquidating and other institutions. We also believe that MSR investments would allow PMT to capture attractive current returns and to leverage the capabilities and efficiencies of PLS to
improve the asset's value.
-
- acquisition of distressed loans or residential real estate. For example, we believe that opportunities exist to acquire condominium development loans at a discount, finance the
20
completion of the project and design and deliver complete condominium financing solutions. This solution creates the opportunity to effectively repackage distressed developer loans into high quality residential loans.
We are externally managed by PCM, an investment adviser that specializes in, and focuses on, residential mortgage loans.
The Company conducts substantially all of its operations, and makes substantially all of its investments, through the Operating Partnership and its subsidiaries. A wholly-owned subsidiary of the Company is the sole general partner of the Operating Partnership and the Company is the sole limited partner.
We intend to qualify to be taxed as a REIT. We believe that we will not be subject to federal income tax on that portion of our income that is distributed to shareholders as long as we meet certain asset, income and share ownership tests. If we fail to qualify as a REIT, and do not qualify for certain statutory relief provisions, our profits will be subject to income taxes and we may be precluded from qualifying as a REIT for the four tax years following the year we lose our REIT qualification. A portion of the Company's activities are conducted in a taxable REIT subsidiary, which is subject to corporate federal and state income taxes. Accordingly, the Company has made a provision for income taxes with respect to the operations of its taxable REIT subsidiary. We expect that the effective rate for the provisions for income taxes will be volatile in future periods. Our goal is to manage the business to take full advantage of the tax benefits afforded to the Company as a REIT.
Observations on Current Market Opportunities
The U.S. economy continues its slow transition out of recession, with economic data providing mixed reports on the economic recovery. During the first quarter of 2010, the U.S. gross domestic product expanded at a 2.7% annual rate compared to expectations of a 3% annual rate and to the prior quarter's 5.6% annual rate. First time homebuyers continue to participate actively in the real estate market, accounting for 43% of all home sales in June 2010. First time homebuyer participation appears to reflect the extension of the first-time homebuyer tax credit that expired in April 2010 but is applicable to sales that were committed by that date and close on or before September 30, 2010.
Offsetting these positive indicators are a June 2010 unemployment rate of 9.5% that is high by recent historical standards, continued increases in the level of foreclosure filings and continuing distress in the banking industry. During the second quarter of 2010, 45 depository institutions were seized, compared to 41 depository institutions in the first quarter. 140 institutions were seized in all of 2009. As of March 31, 2010, the most recent date for which problem bank information is available, the number of problem banks as identified by the FDIC increased to 775 from 702 at December 31, 2009. On March 31, 2010, the Federal Reserve concluded its program to purchase $1.25 trillion of MBS. The Federal Reserve's withdrawal from the MBS market has not had a significant negative effect on mortgage interest rates. 30-year mortgage interest rates declined from 5.08% for the week ended April 1, 2010 to 4.58% for the week ended July 1, 2010 (Source: Freddie Mac's Weekly Primary Mortgage Market Survey).
We believe that the present state of the mortgage market allows us unique, current opportunities to acquire distressed mortgage loans and mortgage-related assets at significant discounts to their unpaid principal balances. Our Manager continues to see substantial volumes of nonperforming residential mortgage loan sales by a limited number of sellers, but very few sales of performing loans. During the quarter ended June 30, 2010 we made acquisitions of MBS totaling $36.5 million and distressed mortgage loans, primarily from one seller, totaling $96.7 million and have committed to purchase an additional $35.7 million, of mortgage loans. Our pending acquisition of mortgage loans is subject to changes in the loans allocated to us by PCM, continuing due diligence and customary closing conditions. There can be no assurance that we will complete the acquisition of all of the loans subject
21
to the commitment or that the acquisition will be completed at all. After June 30, 2010 and through August 4, 2010, we acquired an additional $34.8 million of mortgage loans and $8.6 million of MBS. We continue to expect that our mortgage loan portfolio may grow at an uneven pace, as opportunities to acquire distressed mortgage loans may be irregularly timed and may involve large portfolios of mortgage loans, and the timing and extent of our success in acquiring such mortgage loans cannot be predicted.
We believe that the collapse of the independent mortgage company business model and the weakened condition of banks and other traditional mortgage lenders have created additional opportunities for our business. Under current market conditions, these opportunities include the purchase from smaller mortgage lenders of newly originated mortgage loans that are eligible for sale to a government-sponsored entity ("GSE") such as the Federal Home Loan Mortgage Corporation ("Freddie Mac"), the Federal National Mortgage Association ("Fannie Mae") and the Government National Mortgage Association ("Ginnie Mae") (Freddie Mac, Fannie Mae and Ginnie Mae are each referred to as an "Agency" and, collectively, as the "Agencies"). To the extent market conditions improve, these opportunities could also include the purchase of newly originated mortgage loans that can be resold in the non-Agency whole loan market or securitized in the private label market. We believe that this strategy would also benefit us by supplementing PCM's continuing efforts to increase the number of relationships with depository and other financial institutions that may hold distressed residential mortgage loans. Beginning in the quarter ended June 30, 2010, our Manager made its initial acquisition on our behalf of $1.4 million of newly originated mortgage loans.
We benefit from PCM's analytical and portfolio management expertise and technology in evaluating these investment opportunities. Furthermore, we seek to maximize the value of the mortgage loans we acquire using PCM's proprietary portfolio strategy techniques to identify the appropriate approach for each loan and, through the workout oriented servicing platform of PLS, offer borrowers alternatives, including, where appropriate, the modification of the terms and conditions of loans in a manner that reflects the borrowers' financial condition and residential property values. Mortgage loans may become re-performing through effective modification, restructuring and other techniques, and the mortgage loans subsequently may be monetized through a variety of disposition strategies. When we are unable to effect a cure for a mortgage delinquency, as is the case with a significant percentage of nonperforming loans, our objective is to effect timely acquisition and/or liquidation of the property securing the loan.
Results of Operations for the Quarter Ended June 30, 2010
The following is a summary of our key performance measures for the quarter ended June 30, 2010:
|
(in thousands, except per share data) |
||||
---|---|---|---|---|---|
Net investment income |
$ | 13,324 | |||
Net income |
$ | 8,151 | |||
Diluted earnings per share |
$ | 0.48 | |||
Distributions per share: |
|||||
Declared |
$ | | |||
Paid |
$ | | |||
Total assets at period end |
$ | 370,478 |
During the quarter ended June 30, 2010, we recorded net income of $8.2 million, or 48 cents per diluted share. Our net income reflects net gains on our investments totaling $9.8 million, including $2.9 million of valuation gains, supplemented by $3.2 million interest income, as well as gains on real estate operations of $335,000. Our net income includes a provision of $481,000 for recovery by PCM of common overhead expenses as provided in PMT's management agreement with PCM. During the
22
previous quarter, PCM management waived recovery of common overhead costs that approximated $500,000, and had previously waived recovery of these expenses during the startup of our operations. We expect PCM will no longer waive these expenses.
During the quarter ended June 30, 2010, we made acquisitions of mortgage loans for investment and MBS with fair values of $96.7 million and $36.5 million, respectively. These acquisitions were financed primarily with the proceeds from our IPO, supplemented with $31.4 million of proceeds from the sale of securities under agreements to repurchase. As of June 30, 2010, we also had commitments outstanding to purchase mortgage loans totaling $35.7 million.
The mortgage loans acquired for investment during the quarter had unpaid principal balances on the purchase dates totaling $196.9 million and purchase discounts totaling $98.8 million. Over 90% of the loans were nonperforming. Approximately two-thirds of the loans had FICO scores at origination below 700. Approximately 36% of the mortgage loans acquired during the quarter are secured by California real estate.
During the quarter ended June 30, 2010, we recorded net investment income totaling $13.3 million, comprised primarily of realized and unrealized gains (losses) on investments and interest income as shown below:
|
Investment income | |
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Interest | |
|
|
|
||||||||||||||||||
|
Coupon | Discount accrual |
Total interest |
Realized and unrealized gains (losses) |
Total | Average balance |
Annualized interest %(1) |
||||||||||||||||
|
(dollars in thousands) |
||||||||||||||||||||||
Short-term money market investment |
$ | 22 | $ | | $ | 22 | $ | | $ | 22 | $ | 64,353 | 0.14 | % | |||||||||
Mortgage-backed securities: |
|||||||||||||||||||||||
Non-Agency Alt-A |
303 | 265 | 568 | (127 | ) | 441 | 23,026 | 9.76 | % | ||||||||||||||
Non-Agency subprime |
45 | 536 | 581 | (268 | ) | 313 | 34,265 | 6.71 | % | ||||||||||||||
Non-Agency prime jumbo |
123 | (5 | ) | 118 | 188 | 306 | 15,367 | 3.02 | % | ||||||||||||||
|
471 | 796 | 1,267 | (207 | ) | 1,060 | 72,658 | 6.90 | % | ||||||||||||||
Mortgage loans |
1,912 | | 1,912 | 9,994 | 11,906 | 181,340 | 4.17 | % | |||||||||||||||
|
$ | 2,405 | $ | 796 | $ | 3,201 | $ | 9,787 | $ | 12,988 | $ | 318,351 | 3.98 | % | |||||||||
- (1)
- Annualized interest excludes realized and unrealized gains (losses).
The realized and unrealized gains on mortgage loans for the quarter ended June 30, 2010 is summarized below:
|
(in thousands) | ||||
---|---|---|---|---|---|
Changes reflected in loans' carrying values: |
|||||
Payoffs |
$ | 6,789 | |||
Valuation changes |
3,104 | ||||
Sales |
101 | ||||
|
$ | 9,994 | |||
The change in fair value arising from loan payoffs results from our collection of loan balances at levels higher than our allocated purchase price for such loans, including our acceptance of short payoffs
23
(generally payoffs arising from sales by the borrower of the property securing our loan for less than the amount owing and our acceptance of a reduced payoff in order to resolve the loan) and full payoffs. The valuation changes recognized in our portfolio were primarily the result of real estate values underlying our loans performing better than the projections underlying our initial acquisition. We also realized gains on sales of mortgage loans.
During the quarter ended June 30, 2010, we recognized annualized interest of 4.17% on our portfolio of mortgage loans. However, at June 30, 2010, approximately 75% of our portfolio of mortgages was nonperforming. We do not accrue interest on nonperforming loans and generally do not recognize revenues during the period we hold real estate acquired in settlement of loans. The revenue benefits of nonperforming loans and real estate acquired in settlement of loans generally take longer to realize than those of performing loans due to the time required to work with borrowers to resolve payment issues through our modification programs or to acquire and liquidate the property securing the mortgage loans. The value and returns we realize from these assets are determined by our ability to cure the borrowers' defaults, or when curing of borrower defaults is not a viable solution, by our ability to effectively manage the liquidation process. As a participant in HAMP, we are required to comply with the process specified by the HAMP program before liquidating a loan, which may extend the liquidation process. At June 30, 2010, we held $147.6 million in fair value of nonperforming loans and $13.2 million in carrying value of real estate acquired in settlement of loans.
During the quarter ended June 30, 2010, we also earned an annualized interest yield of approximately 6.90% on our portfolio of MBS. We acquired our current portfolio of MBS as a short-term investment to enhance the yield we earn on our investments pending reinvestment of the proceeds of our initial equity offerings into our targeted asset classes. Accordingly, this portfolio is comprised of currently cash flowing senior priority securities with an estimated average remaining life of approximately 0.9 years.
Results of Operations for the Six Months Ended June 30, 2010
The following is a summary of our key performance measures for the six months ended June 30, 2010:
|
(in thousands, except per share data) |
||||
---|---|---|---|---|---|
Net investment income |
$ | 17,093 | |||
Net income |
$ | 9,405 | |||
Diluted earnings per share |
$ | 0.55 | |||
Distributions per share: |
|||||
Declared |
$ | | |||
Paid |
$ | | |||
Total assets at period end |
$ | 370,478 |
During the six months ended June 30, 2010, we recorded net income of $9.4 million, or 55 cents per diluted share. Our net investment income reflects net gains on our investments totaling $11.0 million, including $4.1 million of valuation gains, supplemented by interest income. Our net income for the period includes a provision of $481,000 for recovery by PCM of common overhead expenses pertaining to the second quarter of 2010 allowable under PMT's management agreement with PCM. For the first quarter of 2010, PCM management waived recovery of common overhead expenses approximating $500,000. PCM previously waived recovery of these costs during the startup of our operations. We expect PCM will no longer waive these expenses.
24
During the six months ended June 30, 2010, we made acquisitions of mortgage loans, real estate acquired in settlement of loans and MBS with fair values of $213.2 million, $1.2 million and $36.9 million, respectively. During the period, we also substantially completed the reinvestment of our short-term money market investment into mortgage loans and MBS.
The mortgage loans acquired during the six months ended June 30, 2010 had unpaid principal balances on the purchase dates totaling $404.4 million and purchase discounts totaling $191.2 million. The loans were primarily nonperforming with approximately 80% of the loans having FICO scores at origination below 700. Approximately 28% of the mortgage loans acquired during the six months ended June 30, 2010 are secured by California real estate.
During the six months ended June 30, 2010, we recorded net investment income totaling $17.1 million, comprised primarily of realized and unrealized gains (losses) on investments of $11.0 million, supplemented by $5.8 million of interest income, as well as gains on real estate operations of $335,000.
Net investment income on financial instruments during the period is shown below:
|
Interest income | |
|
|
|
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Coupon | Discount accrual |
Total | Realized and unrealized gains (losses) |
Total revenue |
Average balance |
Annualized interest %(1) |
|||||||||||||||||
|
(dollars in thousands) |
|||||||||||||||||||||||
Short-term money market investment |
$ | 67 | $ | | $ | 67 | $ | | $ | 67 | $ | 119,603 | 0.11 | % | ||||||||||
Mortgage-backed securities: |
||||||||||||||||||||||||
Non-Agency Alt-A |
645 | 418 | 1,063 | (10 | ) | 1,053 | 24,477 | 8.64 | % | |||||||||||||||
Non-Agency subprime |
79 | 1,131 | 1,210 | (298 | ) | 912 | 36,137 | 6.66 | % | |||||||||||||||
Non-Agency prime jumbo |
266 | 12 | 278 | 158 | 436 | 16,277 | 3.40 | % | ||||||||||||||||
Total mortgage-backed securities |
990 | 1,561 | 2,551 | (150 | ) | 2,401 | 76,891 | 6.60 | % | |||||||||||||||
Mortgage loans |
3,162 | | 3,162 | 11,127 | 14,289 | 121,375 | 5.18 | % | ||||||||||||||||
|
$ | 4,219 | $ | 1,561 | $ | 5,780 | $ | 10,977 | $ | 16,757 | $ | 317,869 | 3.62 | % | ||||||||||
- (1)
- Annualized interest yield excludes realized and unrealized gains (losses).
Realized and unrealized gains on mortgage loans for the period is summarized below:
|
(in thousands) | ||||
---|---|---|---|---|---|
Changes reflected in loans' carrying values: |
|||||
Payoffs |
$ | 6,789 | |||
Valuation changes |
4,237 | ||||
Sales |
101 | ||||
|
$ | 11,127 | |||
The change in fair value arising from loan payoffs results from our collection of loan balances at levels higher than our purchase price for such loans, including our acceptance of short payoffs (generally payoffs arising from sales by the borrower of the property securing our loan for less than the amount owing and our acceptance of a reduced payoff in order to resolve the loan) and full payoffs. We also realized gains on sales of mortgage loans. The valuation changes recognized in our portfolio
25
were primarily the result of real estate values underlying our loans performing better than the projections underlying our initial acquisition.
During the six months ended June 30, 2010, we recognized annualized interest of 5.18% on our portfolio of mortgage loans. However, at June 30, 2010, approximately 75% of our portfolio of mortgages was nonperforming. We do not accrue interest on nonperforming loans and generally do not recognize revenues during the period we hold real estate acquired in settlement of loans. The revenue benefits of nonperforming loans and real estate acquired in settlement of loans generally take longer to realize than those of performing loans due to the time required to work with borrowers to resolve payment issues through our modification programs or to acquire and liquidate the property securing the mortgage loans. The value and returns we realize from these assets are determined by our ability to cure the borrowers' defaults, or when curing of borrower defaults is not a viable solution, by our ability to effectively manage the liquidation process. As a participant in HAMP, we are required to comply with the process specified by the HAMP program before liquidating a loan, which may extend the liquidation process. At June 30, 2010, we held $147.6 million in fair value of nonperforming loans and $13.2 million in carrying value of real estate acquired in settlement of loans.
During the six months ended June 30, 2010, we also earned an annualized interest yield of approximately 6.60% on our portfolio of MBS. We acquired our current portfolio of MBS as a short-term investment to enhance the yield we earn on our investments pending reinvestment of the proceeds of our initial equity offerings into our targeted asset classes. Accordingly, this portfolio is comprised of currently cash flowing senior priority securities with an average remaining life of approximately 0.9 years.
Investment Portfolio Composition
Our portfolio of MBS is backed by non-Agency Alt-A, subprime and prime jumbo loans and consists of currently cash flowing senior priority securities with an average remaining life of approximately 0.9 years. We acquired these securities to provide a higher yield than we earn with our short-term money market investment pending reinvestment in suitable pools of mortgage loans or mortgage-related assets.
The following is a summary of our portfolio of MBS as of the dates presented:
|
June 30, 2010 | December 31, 2009 | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Average | |
|
Average | ||||||||||||||||||||||||||
|
Fair value |
Principal | Life (years) |
Coupon | Yield | Fair value |
Principal | Life (years) |
Coupon | Yield | ||||||||||||||||||||||
|
(dollar amounts in thousands) |
|||||||||||||||||||||||||||||||
Security collateral type: |
||||||||||||||||||||||||||||||||
Non-Agency subprime |
$ | 67,407 | $ | 69,971 | 0.70 | 0.44 | % | 6.56 | % | $ | 39,522 | $ | 41,944 | 0.82 | 0.37 | % | 9.08 | % | ||||||||||||||
Non-Agency Alt-A |
21,412 | 22,359 | 1.30 | 5.22 | % | 8.87 | % | 27,060 | 28,416 | 1.57 | 5.13 | % | 9.08 | % | ||||||||||||||||||
Non-Agency prime jumbo |
14,345 | 14,438 | 1.27 | 3.22 | % | 3.70 | % | 17,189 | 17,452 | 1.42 | 3.43 | % | 4.34 | % | ||||||||||||||||||
|
$ | 103,164 | $ | 106,768 | 0.90 | 1.82 | % | 6.64 | % | $ | 83,771 | $ | 87,812 | 1.18 | 2.52 | % | 8.11 | % | ||||||||||||||
At December 31, 2009, our mortgage loan portfolio had no nonperforming loans. Because of our acquisitions during the six months ended June 30, 2010, 75% of our mortgage loan portfolio is now comprised of nonperforming loans.
26
At June 30, 2010, our portfolio of mortgage loans included mortgage loans held for sale and mortgage loans held for investment as summarized below:
|
June 30, 2010 | ||||
---|---|---|---|---|---|
|
(in thousands) |
||||
Mortgage loans: |
|||||
Held for sale |
$ | 289 | |||
Held for investment |
197,216 | ||||
|
$ | 197,505 | |||
Following is a summary of the distribution of our mortgage loans held for investment at June 30, 2010:
|
Performing loans | Nonperforming loans | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Loan type
|
Fair value | % total | Average note rate |
Fair value | % total | Average note rate |
|||||||||||||
|
(dollar amounts in thousands) |
||||||||||||||||||
ARM/Hybrid |
$ | 13,450 | 7 | % | 4.72 | % | $ | 93,084 | 47 | % | 6.26 | % | |||||||
Fixed |
36,055 | 18 | % | 7.20 | % | 53,216 | 27 | % | 7.21 | % | |||||||||
Balloon |
65 | 0 | % | 9.94 | % | 1,163 | 1 | % | 8.19 | % | |||||||||
Interest rate step-up |
| 0 | % | 183 | 0 | % | 6.73 | % | |||||||||||
|
$ | 49,570 | 25 | % | 6.46 | % | $ | 147,646 | 75 | % | 6.61 | % | |||||||
|
Performing loans | Nonperforming loans | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Lien position
|
Fair value | % total | Average note rate |
Fair value | % total | Average note rate |
|||||||||||||
1st lien |
$ | 49,570 | 25 | % | 6.46 | % | $ | 147,646 | 75 | % | 6.61 | % | |||||||
2nd lien |
| 0 | % | | 0 | % | |||||||||||||
|
$ | 49,570 | 25 | % | 6.46 | % | $ | 147,646 | 75 | % | 6.61 | % | |||||||
|
Performing loans | Nonperforming loans | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Occupancy
|
Fair value | % total | Average note rate |
Fair value | % total | Average note rate |
|||||||||||||
Owner occupied |
$ | 42,511 | 21 | % | 6.42 | % | $ | 109,247 | 55 | % | 6.53 | % | |||||||
Investment property |
7,059 | 4 | % | 6.68 | % | 38,262 | 20 | % | 6.79 | % | |||||||||
Other |
| 0 | % | 137 | 0 | % | 7.42 | % | |||||||||||
|
$ | 49,570 | 25 | % | 6.46 | % | $ | 147,646 | 75 | % | 6.61 | % | |||||||
|
Performing loans | Nonperforming loans | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Loan age
|
Fair value | % total | Average note rate |
Fair value | % total | Average note rate |
|||||||||||||
Less than 12 months |
$ | | 0 | % | $ | | 0 | % | |||||||||||
12 - 35 months |
19,772 | 10 | % | 7.65 | % | 27,703 | 14 | % | 6.85 | % | |||||||||
36 - 59 months |
18,057 | 9 | % | 5.74 | % | 72,460 | 37 | % | 6.65 | % | |||||||||
60 months or more |
11,741 | 6 | % | 5.73 | % | 47,483 | 24 | % | 6.30 | % | |||||||||
|
$ | 49,570 | 25 | % | 6.46 | % | $ | 147,646 | 75 | % | 6.61 | % | |||||||
27
|
Performing loans | Nonperforming loans | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Origination FICO score
|
Fair value | % total | Average note rate |
Fair value | % total | Average note rate |
|||||||||||||
Less than 600 |
$ | 23,322 | 12 | % | 6.10 | % | $ | 71,065 | 36 | % | 6.86 | % | |||||||
600 - 649 |
11,823 | 6 | % | 6.95 | % | 20,118 | 10 | % | 6.89 | % | |||||||||
650 - 699 |
9,105 | 4 | % | 6.88 | % | 24,462 | 13 | % | 6.22 | % | |||||||||
700 - 749 |
3,929 | 2 | % | 6.07 | % | 22,104 | 11 | % | 6.35 | % | |||||||||
750 or greater |
1,391 | 1 | % | 6.76 | % | 9,897 | 5 | % | 5.90 | % | |||||||||
|
$ | 49,570 | 25 | % | 6.46 | % | $ | 147,646 | 75 | % | 6.61 | % | |||||||
|
Performing Loans | Nonperforming Loans | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Current loan-to-value(1)
|
Fair value | % total | Average note rate |
Fair value | % total | Average note rate |
|||||||||||||
Less than 80% |
$ | 11,411 | 6 | % | 6.30 | % | $ | 23,652 | 12 | % | 6.58 | % | |||||||
80% - 99.99% |
8,870 | 4 | % | 7.61 | % | 29,195 | 15 | % | 6.31 | % | |||||||||
100% - 119.99% |
11,288 | 6 | % | 6.64 | % | 38,842 | 20 | % | 6.44 | % | |||||||||
120% or greater |
18,001 | 9 | % | 6.06 | % | 55,957 | 28 | % | 6.76 | % | |||||||||
|
$ | 49,570 | 25 | % | 6.46 | % | $ | 147,646 | 75 | % | 6.61 | % | |||||||
- (1)
- Current loan-to-value is calculated based on the unpaid principal balance of the mortgage loan and our estimate of the value of the mortgaged property.
|
Performing loans | Nonperforming loans | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Geographic distribution
|
Fair value | % total | Average note rate |
Fair value | % total | Average note rate |
|||||||||||||
California |
$ | 7,136 | 4 | % | 4.74 | % | $ | 43,212 | 22 | % | 5.84 | % | |||||||
Florida |
2,441 | 1 | % | 6.55 | % | 16,466 | 8 | % | 6.81 | % | |||||||||
New York |
3,204 | 1 | % | 6.46 | % | 10,293 | 5 | % | 7.10 | % | |||||||||
Illinois |
3,475 | 2 | % | 6.94 | % | 7,640 | 4 | % | 6.72 | % | |||||||||
New Jersey |
1,211 | 1 | % | 7.26 | % | 7,290 | 4 | % | 6.41 | % | |||||||||
Texas |
3,553 | 2 | % | 7.22 | % | 3,098 | 2 | % | 7.77 | % | |||||||||
Other |
28,550 | 14 | % | 6.83 | % | 59,647 | 30 | % | 6.95 | % | |||||||||
|
$ | 49,570 | 25 | % | 6.46 | % | $ | 147,646 | 75 | % | 6.61 | % | |||||||
|
Performing loans | Nonperforming loans | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Payment status
|
Fair value | % total | Average note rate |
Fair value | % total | Average note rate |
|||||||||||||
Current |
$ | 36,536 | 19 | % | 6.56 | % | $ | | 0 | % | |||||||||
30 days delinquent |
6,248 | 3 | % | 5.83 | % | | 0 | % | |||||||||||
60 days delinquent |
6,786 | 3 | % | 6.55 | % | | 0 | % | |||||||||||
90 days or more delinquent |
| 0 | % | 75,754 | 38 | % | 6.38 | % | |||||||||||
In foreclosure |
| 0 | % | 71,892 | 37 | % | 6.83 | % | |||||||||||
|
$ | 49,570 | 25 | % | 6.46 | % | $ | 147,646 | 75 | % | 6.61 | % | |||||||
28
Following is a summary of the distribution of our mortgage loan holdings, all of which were considered performing loans, at December 31, 2009:
Loan type
|
Fair value | % total | Average note rate |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(dollar amounts in thousands) |
|||||||||
Fixed |
$ | 24,533 | 94 | % | 8.15 | % | ||||
ARM/Hybrid |
1,454 | 6 | % | 7.89 | % | |||||
Balloon |
59 | 0 | % | 9.94 | % | |||||
|
$ | 26,046 | 100 | % | 8.14 | % | ||||
Lien position
|
Fair value | % total | Average note rate |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
1st lien |
$ | 26,046 | 100 | % | 8.14 | % | ||||
2nd lien |
| 0 | % | |||||||
|
$ | 26,046 | 100 | % | 8.14 | % | ||||
Occupancy
|
Fair value | % total | Average note rate |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Owner occupied |
$ | 21,890 | 84 | % | 8.10 | % | ||||
Investment property |
4,156 | 16 | % | 8.32 | % | |||||
Second property |
| 0 | % | |||||||
|
$ | 26,046 | 100 | % | 8.14 | % | ||||
Loan age
|
Fair value | % total | Average note rate |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Less than 12 months |
$ | 121 | 0 | % | 5.54 | % | ||||
12 - 35 months |
25,466 | 98 | % | 8.15 | % | |||||
36 - 60 months |
459 | 2 | % | 8.13 | % | |||||
|
$ | 26,046 | 100 | % | 8.14 | % | ||||
Origination FICO score
|
Fair value | % total | Average note rate |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Less than 600 |
$ | 8,174 | 31 | % | 8.58 | % | ||||
600 - 649 |
8,702 | 33 | % | 8.23 | % | |||||
650 - 699 |
6,111 | 24 | % | 7.88 | % | |||||
700 - 749 |
2,260 | 9 | % | 7.12 | % | |||||
750 or greater |
799 | 3 | % | 6.77 | % | |||||
|
$ | 26,046 | 100 | % | 8.14 | % | ||||
29